The Wall Street Journal last weekend published an op-ed by Tufts University professor Amar Bhidé arguing against the efficacy of the federal research and development tax credit, “Don’t Expect Much From the R&D Tax Credit.”

Bhidé’s argument falls short because he barely acknowledges the global competitive realities faced by manufacturers in the United States, including the growing race for R&D investment dollars worldwide. (It’s an odd oversight coming from a professor from Tufts, an institution with a sterling reputation for studies in diplomacy and international economics.)

Congressional failure to renew the R&D tax credit, which expired last December, would represent a unilateral surrender in this competition. Innovation and jobs would both suffer as companies adjusted their domestic R&D to reflect the U.S. abandoning the race.

A few key facts:

• In 2009, 21 OECD countries offered R&D tax incentives — 16 of which offered stronger incentives than the United States — compared to just 12 OECD in 1996. This 75 percent increase over 15 years is anything but coincidental, but rather a targeted effort by countries to jumpstart technological advancements and innovations by the private sector.
• The U.S. share of global R&D has fallen from 39 percent in 1999 to 33 percent in 2007, while China’s share increased fourfold. (Source: Organization for Economic Co-operation and Development, “Ministerial Report on the OECD Innovation Strategy,” May 2010)
• China surpassed Japan’s ranking in 2009, taking the No. 2 spot behind the U.S. in world R&D spending.

Nearly 18,000 companies use the credit, far more than just the largest companies with large R&D budgets. Indeed, companies of all sizes doing R&D on American soil continue to be courted, in some cases aggressively, by other countries to move their U.S.-based R&D offshore.

The U.S tax credit is available only for research and development performed in the United States. IRS statistics further show that the R&D credit is a jobs credit – 70 percent of the claims made against the credit are for employee salaries.

Manufacturers are keenly aware of the tax credit’s incentives and impact. The manufacturing sector accounts for nearly 70 percent of R&D credit claims and performed 70 percent of all business R&D in the United States. The emphasis is understandable: R&D fuels the innovation that drive new product development and increased productivity — two necessary factors for growth in manufacturing.

The professor’s arguments make might sense in a theoretical setting, but manufacturers live in the real world where many countries are competing for companies that do research and development. From a manufacturer’s perspective, a more accurate title for Professor Bhidé’s op-ed might have been, “Don’t Expect Much if the R&D Tax Credit is NOT Renewed, Strengthened & Made Permanent.”

President Obama will make a statement at 10 a.m. at the White House on today’s new employment report, which showed August unemployment at 9.6 percent.

In the meantime, speculation soars about a September “stimulus” plan. The Washington Post reports, “White House considers pre-midterm package of business tax breaks to spur hiring“:

With just two months until the November elections, the White House is seriously weighing a package of business tax breaks – potentially worth hundreds of billions of dollars – to spur hiring and combat Republican charges that Democratic tax policies hurt small businesses, according to people with knowledge of the deliberations.

Among the options under consideration are a temporary payroll-tax holiday and a permanent extension of the now-expired research-and-development tax credit, which rewards companies that conduct research into new technologies within the United States.

Running it up the flagpole, eh? Well, salud!

But it all seems so tactical, more a matter of packaging than policy. Take the research and development tax credit, for example. President Obama’s proposed budget for Fiscal Year 2011, released February 1, already called for making the R&D tax credit permanent. If you have to give it a new label, call it “Super Stimulus Innovation Jobs Great Tax Credit for Business, Business, Business,” to get it passed, fine, but the credit — first adopted in 1981 — has proved to be an effective tool for job creation and innovation that should have passed long ago on its merits.  (It’s like the Miscellaneous Tariff Bill: OK if you want to redub it the Manufacturing Enhancement Act, just get it done!)

Dena Battle, tax policy director at the National Association of Manufacturers, appeared on Fox Business News on Thursday to discuss these issues (video). Asked about the new proposals being floated, she said:

Some of the things they are talking about are good ideas. Obviously we support a permanent R&D tax credit. I think what’s really missing here are some other key elements. You’ve got these 2001 and 2003 tax cuts expiring at the end of this year, and Congress has done nothing to extend those. Businesses are looking at that, and they have no idea what tax rates they’re going to be paying next year.

You really have to do something to show businesses and give them that level of certainty right now. That has to be part of anything they’re doing for job creation.

Right. If you read toward the end of the Post story, you see a reference to the White House considering “targeted business tax breaks.” Targeted = tactical.

But as NAM President John Engler argued in his introduction to the NAM’s report, the “Manufacturing Strategy for Jobs and a Competitive America“: [We] have no battle plan, no comprehensive approach for making manufacturing in the United States more competitive, more productive and creating even more high-paying jobs. The unprecedented challenge to U.S. manufacturing pre-eminence requires clear thinking, a global vision and a plan.” That is, a strategy.

UPDATE (10:25 a.m.): President’s White House appearance amounted to a reaffirmation of his proposal for small business loans and extending “middle class tax cuts,” which is to say, letting the bulk of the 2001 and 2003 tax cuts expire. He’ll say more next week.

Mead Treadwell, former chair of the U.S. Arctic Research Commission and a candidate for lieutenant governor of Alaska, recalls a lesser-known aspect of Sen. Ted Steven’s career:

Ted was also one of the Senate’s biggest “gearheads” and a big supporter of research and development — in the Arctic, in the military, in health research, and, ironically, in aviation safety. The “NextGen” air-traffic control system being adopted in the United States and around the world — which uses GPS signals for navigation rather than a network of ground beacons — was pioneered as the Capstone program in western Alaska, where he died. Stevens made that happen

The Anchorage Daily News reviews his life and career, “Stevens made history with tenacious style,” calling him the “last giant of statehood.”

It is no secret that the United States’ position as a world leader in research and development is slipping as the world gets flatter, evidenced by the growth of R&D popping up around the globe, attracted by more generous R&D tax incentives. With major U.S. trading partners offering refundable R&D credits or super tax deductions, the attraction for U.S.-based R&D to move offshore is proving to be strong. No surprise when the French minister of Higher Education and Research visited Washington, D.C., this month that she touted her government’s R&D tax incentive as the best one offered among EU countries. In the mid-1980s, the U.S. had the strongest R&D tax incentive among OECD countries. By 2009, the U.S. R&D tax credit ranked 17 out of 21 countries offering an R&D tax incentive. Today, the United States ranks dead last with an expired credit!

And prospects for renewing the U.S. R&D tax credit this year grow dimmer as Congress fails to act despite bipartisan, bicameral support and President Obama’s repeated championing of the credit. Manufacturers are the biggest users of this jobs credit, claiming nearly 70 percent of R&D credits. Why? Because R&D fuels innovations and technological advancements that translate into new products and increased productivity—two necessary components for growth in manufacturing.

With the manufacturing sector having lost two-plus million jobs in the recession that began in December 2007, a sure bet to keeping high skilled, high wage R&D jobs in the United States is to seamlessly renew the credit in the short term, and strengthen and make permanent the credit in the long term. More than 70 percent of R&D Credit dollars are attributable to wages, U.S. wages only, because the credit only applies to research performed in the United States.

With unemployment hovering around 10 percent, swift congressional action to renew the credit would be a formidable step in saving and in comes cases creating jobs, in addition to boosting the incentive value of the Credit because companies would be certain that the credit will be available for R&D done in the United States in 2010. I hope House Majority Leader Hoyer’s public comments of July 23, “My own personal view would be to make it retroactive again” become true. The credit has been extended temporarily 13 times since it was enacted in 1981, 10 times packaged with permanent tax increases and the remaining times with other tax increases. There was a permanent gap of no credit from mid-1995 to mid-1996. To have an anemic credit restored is better than to have no credit at all, if the United States is serious about competing in the global race for R&D investment dollars.

John Engler, President of the National Association of Manufacturers, summarizes the NAM’s new policy guide and call to action, “A Manufacturing Strategy for Jobs and American Competitiveness.”

The goals are threefold:

• The United States will be the best country in the world to headquarter a company. We want companies to be based in the United States.
• The United States will be the best country in the world to innovate, performing the bulk of a company’s global research and development.
• The United States will be a great place to manufacture, both to meet the needs of the American market and serve as an export platform for the world.

Engler: “We said this isn’t going to get done immediately in this Congress. They’re about ready to wrap-up. But we want everyone who’s running for Congress who’s going to sit in January start to look now and be committed to some things. Let’s give us some certainty.”

The House today voted 292-126 to return the America COMPETES Act reauthorization bill to committee, including instructions to amend the bill. The Chronicle of Higher Education nicely covers the issues at play (with an obvious emphasis the university R&D angle), “House Republicans Block Bid to Increase Federal Support for Scientific Research“:

A Democrat-led effort to expand federal support for university research hit a roadblock on Thursday when the House of Representatives accepted a Republican proposal to trim spending levels and impose new conditions on the government and on institutions.

The House voted, 292 to 126, in favor of the Republican proposal, effectively halting Democratic plans to pass a five-year renewal of the America Competes Act. Congress first approved the bill in 2007 with the goal of doubling within seven years the total amount of federal spending on long-term basic research.

The hot-button issue pushed by the Republicans was a ban on spending federal money for salaries of employees disciplined for viewing pornography on office computers.

But it would be a mistake to dismiss the criticism of overspending. The public IS worried by federal spending and debt. The Heritage Foundation’s The Foundry blog hit on those points in a post earlier this week, “The America Competes Act: Business-As-Usual in Washington.”

The NAM had issued a Key Vote letter in support of the legislation earlier this week.

The House on Wednesday passed H.R. 4213, the Tax Extenders Act, by a vote of 241-181. Included in the measure was a one-year extension of the Research and Development Tax Credit, a critical priority for manufacturers and U.S. innovators.

The R&D Credit Coalition, which the National Association of Manufacturers helps lead, on Tuesday sent a letter to the Hill signed by more than 5,300 employees from 135 companies. Bloomberg also reported on the push for the credit:

Among the tax breaks being renewed is a research and development credit created in 1981 on a temporary basis and extended more than a dozen times. Thousands of companies including Dow Chemical Co., Microsoft Corp. and CA Inc. lobby for its renewal, saying 70 percent of the benefit pays the wages of U.S.-based researchers.

“The R&D tax credit is pretty much a key component of our ability to hire,” said James Barry, senior vice president of corporate technology development at Boston Scientific Corp., maker of coronary stents and other medical devices.

The one-year extension is a good thing, but the Congressional pattern of letting the credit expire or near expiration, then extending it — retroactively — adds uncertainty to business investment decisions. Many other countries have R&D tax credits that are more generous and permanent. As Monica McGuire, senior policy director for the NAM, explained in an NPR segment this morning:

“Companies need continuity to know that the credit’s going to exist at the time the R&D project is completed,” says McGuire. “In manufacturing, the typical R&D project could span five to 10 years.”

McGuire calls the R&D credit a jobs credit, noting that most of the money saved goes to pay employees. Manufacturing has shed more than 2 million jobs since the recession started. Still, even in a tough economy, the credit’s extension is a thorn for deficit hawks.

Good report on the state of the play, or no-play, of the research and development tax credit by Brian Wingfield at Forbes, “No Developments.”

It’s favored by business groups, celebrated by presidential candidates and loved by politicians on both sides of the aisle, yet it can’t grab Washington’s attention.It’s the research and development tax credit, which lawmakers let expire at the end of last year in a partisan dispute over tax issues and how to pay for them. Businesses say that without it, other countries like Canada, Ireland and Australia–which have attractive R&D tax incentives–will lure research jobs away from the U.S.

“It’s a motherhood and apple pie issue,” says Monica McGuire, who’s lobbying for the credit on behalf of the National Association of Manufacturers and the much broader R&D Credit Coalition.

 The website of the R&D Credit Coalition is InvestinAmericasFuture.org.